Estonian lawmakers adopt private debt restructuring law
17.11.2010, 16:11Estonia’s parliament adopted a bill allowing courts to reduce liabilities of thousands of mortgage borrowers who have overdue debt payments, writes Bloomberg.
Lawmakers voted 87-1, with no abstentions, to give judges the right to reduce all debtors’ liabilities that exceed the market value of the collateral. Courts may need to handle as many as 1,500 cases a year of private debt restructuring, Ken- Marti Vaher, a co-author of the bill, told lawmakers yesterday, parliament’s justice department.
Estonia should seek the European Central Bank’s opinion before approving the bill, as European Union rules require Estonia to consult with the ECB on any legislation in its competency, the country’s central bank said last month.
“Adoption of this bill won’t harm the reliability of the financial institutions and won’t make lending more expensive, considering that a similar option to restructure debts is legalized in most European Union members, including the Nordic countries, whose big banks are dominant here,” Vaher said yesterday.
Estonia’s lenders, led by Stockholm-based Swedbank AB and SEB AB, and the employers’ lobby have opposed the bill, saying it will increase borrowing costs, reduce lending and overload the courts, while no estimates have been published before on the scope of possible cases.
The bill, mainly directed at those who are behind on mortgage payments, will come into force on April 5 and also apply to existing debts. It would apply only to borrowers deemed to have temporary solvency problems, helping them to avoid a bankruptcy, Vaher said yesterday.
“The homes put up for a collateral will be much better protected, with banks having much less incentive to quickly put those up for sale,” Vaher said today.
The court can overrule opposition from creditors, if it sees the restructuring helping creditors to recover more debts than would be possible through bankruptcy proceeding, he said.
About 5 percent of 158,000 mortgage borrowers were behind on their payments at the end of August, Hannes Rumm, a lawmaker with the opposition Social Democrats, said in parliament today.
The stock of overdue mortgages was 9.3 billion krooni ($800 million) at the end of September, or 8.2 percent of all loans to private individuals, down from a record 10.1 billion krooni in February, according to central bank data.